Analysts squash speculation of a Nestle-Hershey takeover

Correction: This story has been updated to indicate the U.S. makes up 80% of Hershey’s global share.

Dive Brief:

  • Analysts have shut down speculation that Nestle might be considering a takeover of Hershey, which sent the leading U.S. chocolate company's shares soaring last Thursday, according to a report from TheStreet.
  • Analysts named Hershey's ownership structure as a chief obstacle for a takeover by Nestle. The charitable Hershey Trust foundation, formed in 1905, has control over the company and can block any unwanted buyer.
  • The takeover also wouldn't seem to align with Nestle's current strategy of building and acquiring global brands (85% of Hershey's revenue is derived from North America), boosting its ailing performance in China, and seeking partnerships and acquisitions to support its health science division globally.

Dive Insight:

A Hershey takeover would give Nestle the leading spot in the U.S. chocolate market, where the Swiss company currently ranks No. 4, which is one reason this deal could be attractive to Nestle. However, 80% of Hershey's global sales stem from the U.S., making Hershey "yet another local brand" instead of the more global brands Nestle seems to be after, Lianne van den Bos, senior food analyst at Euromonitor, told TheStreet.

Instead, expanding Nestle's U.S. chocolate footprint is more likely to come through tinier acquisitions, according to TheStreet. Also, over the past year, Nestle has pursued expansions of its international brands, particularly premium chocolate, into the U.S. market, such as Cailler from Switzerland or Damak from Turkey.

TheStreet argued that Nestle's takeover of Hershey wouldn't produce major antitrust hurdles in the U.S. Executives of both companies acknowledged that getting the deal past antitrust regulators was a concern when such a takeover was rumored back in 2002. That may have been more than a decade ago, but the two companies have steadily maintained market share hold since.

While Hershey's portfolio is predominantly chocolate and indulgence-based, the company has made moves that could align with Nestle's commitment to better-for-you products. Hershey recently expanded the Krave jerky brand with protein bars, which it acquired last year, and launched its SoFit brand of healthier snacks earlier this year. Hershey also continues to work toward simpler and more natural ingredients for its chocolate brands, including Hershey's Kisses and milk chocolate bars, which debuted with no artificial flavors last holiday season. 

Still, Nestle's health-related initiatives go one step further with its investment in the medical foods segment, wherein foods serve as a delivery system for nutrients and medications that can treat chronic illnesses. Nestle is looking for a boost to finally hit its sales growth targets after three consecutive years of misses.

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